Consumer Sectors to See K-Shaped Recovery

Kenanga notes the consumer sector’s 2QCY22 results from the recently concluded reporting season were amongst the best within the sectors it covers. Although results came off marginally (against expectations) with 46%, 31%, and 23% coming in above, within, and below its forecasts, they were still very commendable. F&N and QL beat on a combination of higher ASPs and pent-up demand amidst festivities.

A better product mix skewed towards high-margin products coupled with festive pent-up demand saw AEON and PADINI beating expectations as well. CARLSBERG and HEINEKEN surprised on the upside with a stronger-than-expected rebound on the economy reopening. However, MRDIY disappointed as it is believed that consumers shifted spending away from home improvement as movement restrictions were lifted.

After the boost from reopening and festivities in the first half, the research house expects consumer spending to normalise in second half of the year. However remains mindful of headwinds such as high inflation that erodes consumer spending power, and depleting pandemic handouts and fund withdrawals. These will prompt consumers to cut back or down trade or switch to cheaper alternatives. Giving credence to the views includes footfall in malls and shops having eased after the Hari Raya celebration while sales have been hit across the board on multiple price hikes against a backdrop of nascent economic recovery and wage increases.

Nevertheless, topline for the remainder of the year to be supported by the recovery in the labor market, end-of-year demand with supporting policies, and a gradual pick-up in tourism activities. Kenanga believes the M40 group will continue to maintain spending underpinned by a healthy household balance sheet, but the B40 group will be struggling amidst depleting pandemic handouts and fund withdrawals.

Overall the stance on the sector remains neutral the retail players are likely to maintain their sales as their customer base is skewed towards the M40 group whose spending power is supported by a healthy household balance sheet. The retail players are able to pass on higher costs and hence maintain their margins. On the other hand, while the F&B producers are likely to maintain their sales, this will be achieved at the expense of margins. The F&B producers have little room to hike prices as their customer base is skewed toward the B40 group which is harder hit by the high inflation.

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